(

)

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the instructions to Form

-Q and Article

of Regulation S-

of the SEC. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. The

December 31, 2019

consolidated balance sheet data was derived from our audited consolidated financial statements, but does

not

include all disclosures required by U.S. GAAP. The Company's operations are domiciled in the United States (U.S.) and Mexico, and we serve a wide variety of domestic and international customers. All intercompany transactions and accounts have been eliminated.

These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the results of operations, financial position and cash flows for the periods presented, and the disclosures herein are adequate to make the information presented

not

misleading. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results for the

three

and

nine

months ended

October 4, 2020

are

not

necessarily indicative of the results that

may

be expected for the year ending

December

31,

2020.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended

December 31, 2019

as presented in the Company's Annual Report on Form

-K. Certain prior period amounts have been reclassified to conform with current period presentation.

COVID-

Assessment

March 2020,

the World Health Organization categorized the current coronavirus disease (“COVID-

19”

) as a pandemic, and the President of the United States declared the COVID-

outbreak a national emergency. COVID-

continues to spread throughout the United States and other countries across the world. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-

pandemic. The Company's consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company's long-lived asset valuation; inventory valuation; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; and pension plan assumptions.

The Company has continued to operate at each location and sought to remain compliant with government regulations imposed due to the COVID-

pandemic. During periods of lower production, the Company is scheduling and performing certain preventative maintenance procedures on its equipment and is utilizing resources to continue making progress on certain of the strategic initiatives included in the Company's

2020

annual operating plan. The Company began to experience lower revenue late in the

first

quarter due to the COVID-

pandemic, and a more significant impact in the

second

quarter, especially within the Sypris Technologies group. However, towards the end of the

second

quarter, some state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. While the Company expects the effects of the pandemic will continue to negatively impact its results of operations, cash flows and financial position, management has implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each location. Factors deriving from the COVID-

response that have or

may

negatively impact sales and gross margin in the future include, but are

not

limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the material components we utilize in the manufacture of the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of our customers to conduct their business and purchase our products; and limitations on the ability of our customers to pay us on a timely basis.

We are experiencing disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time. With respect to liquidity, we have evaluated and took actions to reduce costs and spending across our organization. This includes reducing hiring activities, reducing compensation for our Chairman, President and CEO, certain other senior leadership and corporate personnel and our Board of Directors, and limiting discretionary spending. In addition, under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we have deferred certain payroll taxes into future years. We have also reduced anticipated spending on capital investment projects and are managing working capital to preserve liquidity during this crisis. In addition to these activities, during the

second

quarter, the Company secured a

$3,558,000

term loan with BMO Harris Bank National Association (“BMO”), pursuant to the Paycheck Protection Program (the “PPP Loan”) under the CARES Act. Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments.

While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-

pandemic will have on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and

may

take further actions that alter our business operations as

may

be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.